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United States Announces Resolution of Dispute Over Chinese Wind Power Subsidies

8 June 2011

Mayer Brown Legal Update

The United States has claimed victory in its World Trade Organization (WTO) challenge to China’s wind power equipment subsidies. In a June 7, 2011 announcement, US Trade Representative Ron Kirk stated that the United States had successfully challenged China’s Special Fund for Wind Power Equipment Manufacturing (Special Fund) and secured China’s agreement to end the program. The United States had filed a request for consultations with China on December, 22 2010, signaling a potential WTO dispute on the Special Fund. The United States and China held consultations on February 16, 2011.

Under the Special Fund, China provided monetary grants and other benefits to its domestic wind power manufacturing industry. The United States, in its December 2010 filing, claimed that the program provided subsidies and other support contingent on the use of domestic Chinese components in violation of the WTO Agreement on Subsidies and Countervailing Measures (SCM). The United States also claimed that China failed to notify the WTO of its wind power program, as required under the SCM Agreement.

The US WTO action stemmed from an investigation under Section 301 of the Trade Act of 1974. That investigation, opened October 15, 2010, was spurred by a September 10, 2010, Section 301 petition by the United Steel Worker’s Union (USW). If a Section 301 investigation reveals practices allegedly inconsistent with a trade agreement, the USTR must seek formal consultations to address those practices.

The USW petition made allegations that went far beyond the particular wind power program challenged by the United States. The USW also contended that China imposed improper export restrictions on “rare earth” minerals used to produce several green technology products, including advanced batteries, solar panels, and fluorescent light bulbs. The petition further accused China of providing prohibited direct and indirect subsidies to its clean energy industry, including research and development grants, low-interest loans, and export credit guarantees. The USW also alleged that China discriminates against foreign investors through domestic content and technology transfer requirements. The United States addressed some of these additional concerns through bilateral negotiations, in which it confirmed the elimination of two other disputed subsidy programs.

The USTR’s June 7, 2011, announcement did not state whether all of the USW’s complaints had been addressed or whether USTR would take further related action under Section 301. In a press release concerning the USTR announcement, USW President Leo Gerard stated, “We need continued action on our other complaints in our petition to ensure that China's protectionist and predatory practices in the clean tech energy sector are eliminated.”

The United States heralded the dispute’s resolution as its third successful WTO challenge to Chinese trade subsidies. Ambassador Kirk’s statement also criticized China’s “inadequate transparency” as a barrier to addressing subsidy-related concerns, and complained of additional failures by China to notify disputed subsidy programs, suggesting continuing bilateral trade tensions. Ambassador Kirk was silent regarding the aspect of the case that challenged the lack of such notifications, so the United States may have dropped that portion of the case. Nonetheless, the settlement of this dispute in a consultation phase demonstrates that the United States and China can effectively resolve important disputes expeditiously and without WTO litigation. The matter was resolved fewer than six months after the United States filed its initial WTO action. A WTO litigation can take as long as three years before a final verdict, which, rather than resolving a matter, may itself give rise to protracted implementation and retaliation disputes.

The US action may also mean the resurrection of Section 301 as a tool for US businesses and workers to address international trade issues. In recent years, the United States has frequently rejected Section 301 petitions, and, thus, Section 301 has been considered an ineffective tool for prompting government action on trade issues. This action may indicate that the US government is now more receptive to Section 301 petitions, and its partially effective use by domestic interests may further encourage potential petitioners to use the law.

For more information about the issues discussed in this Legal Update, or about other WTO dispute settlement actions or US Section 301 investigations, please contact
at +1 202 263 3866,
at +1 202 263 3774, or
at +1 202 263 3306.

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